Paying NFP directors: what every not-for-profit board needs to consider

The AICD has developed a guide that will assist not-for-profit boards in deciding whether paying directors for their service is right for their organisation.

As complexity and time demands increase, more NFP boards are considering if their volunteer directors should be paid. Australian NFPs range from small, volunteer-run community organisations to large, complex entities delivering critical services infrastructure. The AICD’s Not-for-Profit Governance and Performance Study indicates director remuneration is increasing across parts of the diverse NFP sector, although it remains a minority practice overall.

“Whether to remunerate directors goes to the heart of an organisation’s purpose, culture and social contract with its members, volunteers, beneficiaries and donors,” says AICD CEO Mark Rigotti. “There is no single or correct answer and for many organisations, the right conclusion may be not to remunerate directors.”

Not one solution

In its Not-for-profit director remuneration guide: Considerations for boards, the AICD doesn’t advocate for all NFP directors to be remunerated. The guide is intended to support each NFP organisation, its board and members in their considerations and decision making, taking account of their specific circumstances and regulatory obligations.

“Directors are navigating heightened regulatory scrutiny, evolving community expectations, increased operational/financial complexity and growing risk exposures across areas such as workforce, cybersecurity and service delivery,” says Rigotti. “These pressures are particularly evident in larger, more complex NFPs, including those delivering care and human services, and providing social infrastructure at scale.”

Sensitive and specific

There is a longstanding tradition of directors contributing their time, skills and experience, often in service of community organisations and causes they care deeply about. Volunteer directors play an essential role across the NFP sector and volunteer governance remains central to the identity, culture and purpose of many NFPs and charities.

To pay or not to pay is a complex and sensitive governance question. It is essential that all organisations ensure the specific circumstances are considered and external advice sought where possible. Unpaid directors generally face the same or similar legal duties and responsibilities as directors in the for-profit sector.

Members have frequently requested guidance to assist them in considering the range of philosophical and practical considerations. The case for paying directors can often cover the following factors:

Attracting and retaining directors with relevant skills and lived experience that will meaningfully contribute to the governance of the NFP and its strategic performance outcomes

Expanding the potential pool of directors by addressing equity concerns associated with a volunteer-only model, which may limit who can serve as an NFP director

Reflecting the increased time, dedication and workload expected of an NFP director in overseeing complex organisations, including expanded regulatory requirements and obligations

Recognising that payment provides a direct accountability mechanism, signalling greater expectations of director focus and diligence

Benchmarking against comparable industry or sector organisations, both NFP and for-profit, that remunerate directors, and considering how this may influence the pool of future candidates.